Impact of GST Rate changes on Consumers

Impact of GST Rate changes on Consumers

November 22, 2017 Compliance Blog 1

Goods and Services Tax Council lowered the tax rate for various items in its 23rd GST Council Meeting. The Council took major decisions regarding the Goods and Services Tax, which subsumes all central and state levies and was introduced on July 1.

The GST Council has proposed to move 178 Items from the highest 28% Slab to the 18% Category. This will not only boost consumption and will also increase compliance.

Reduction in GST rates will also bring growth for the consumer products and retail industry. The goods which have been selected for revision from 28% Slab to 18% slab primarily include mass consumption products. This  10% decrease from 28% Slab to 18% Slab in certain household and personal care items will benefit companies in these sectors.

Taxation on selected items in few other tax slabs (18%, 12% and 5%) has also been lowered.

The biggest blow came to restaurants. The government announced that eating out will now be taxed at 5%. The catch here is that they will no longer be eligible for input tax credits. Food parcels (or takeaways) will also attract 5% GST without ITC.

Blockage of Input Tax Credit will increase restaurants’ capital requirements and operating costs, and this will cause a surge in prices.

Many experts feel that blocking of Input Tax Credit is grossly unjustified for Restaurants as the Government should have waited for one return cycle to check if the Restaurants have reduced their prices or not

The Government should possibly consider allowing Input Tax Credit of renting of properties to Restaurants as it is one of the major costs involved. It is to be noted here that restaurants in hotel premises having room tariff of not less than Rs. 7500 per unit per day will attract GST of 18% with ITC.

It is expected that most of the FMCG majors will reduce the prices of the products to give effect to reduction of tax rates.  Despite the revised rates, firms may face difficulties while passing on the benefits to the consumer. Companies, along with tax experts, are facing a hurdle to lower prices.

Some retailers are not willing to cut prices unless the producers protect the retailers’ margins and take back the old stock before implementing price cuts.

There will be a transition time before new price stocks are available in the market. Thus with multiple channels and processes to be taken care of, the reduction of prices may take time.

Reduction in rates for Plastic Industry from slab of  28 % to 18 % would help in reduction of price on products such as plastics floorings, fabrics, furniture, vacuum flasks bath and sanitary fittings and many other miscellaneous plastics products, thus giving a boost to manufacturing companies in this segment.

Reduction in daily consumption items will help enhance consumption and improve customer sentiment considerably. This massive pruning of GST rates should have an anti-inflationary impact on the economy and should compensate for the inflation impact of increased oil prices.

Consumer durables will continue to be taxed at 28% however many manufacturers are of the opinion that this may not affect sales.

To reflect the  reduction in GST Rates , government has allowed companies to affix an additional sticker or stamping or online printing for declaring the reduced MRP on the pre-packaged commodities. Companies have been allowed to paste a price sticker on packaged products to reflect the new MRP till December, 2017.

It is expected that State legal metrology officers will be checking   whether companies  are pasting the new MRP stickers or not to ensure that rate cuts on commodities have been passed on to consumers through reduced prices.

The following presents a list of Consumer Products which will benefit due to rate reduction

  1. A) From 28% to 18%-:
Consumer Products Companies
Shampoo, deodorants & other toiletries HUL, ITC
Detergents HUL
Hair cream & dyes Godrej Consumers
Liquid or cream for skin washing Colgate
Instant coffee Nestle, HUL
Chocolates, chewing gums, malt extract, food preparation of flour GSK Consumer, ITC, HUL
Shaving & razor blades Gillette, HUL
Watches, goggles Titan
Luggage VIP Industries, Safari
 

 

 Light Electricals Companies
Fans, pumps & lamps Crompton Consumer, Havells, Orient Electric, Bajaj Electricals
Switches Havells
Cables & wires Havells, Finolex Cables, V Guard
Primary cell & batteries Eveready Industries
 
 Capital goods Companies
Fork lifts, lifting and handling equipment, bulldozers, excavators, earth moving machinery, escalators Larsen & Tubro , BEML
 
Home building Companies
Marble and granite tiles & ceramic items Kajaria Ceramics, Somany Ceramics, Asian Granito
Wooden furniture – including plywood, veneered panels and laminated wood  Century Ply, Greenply
Mattress, bedding articles and similar furnishing items – Bombay Dyeing
Sanitary wares Cera Sanitaryware Limited
 
Others Companies
Rubber tubes and articles of rubber MRF, Ceat, Apollo Tyres, JK Tyres

 

  1. B)  18% slab to 12% slab 
Food Items Companies
Condensed Milk Nestle, Parag Milk Foods
Refined sugar and sugar cubes Balrampur Chini, Shree Renuka
Pasta & diabetic food Nestle, ITC
Other  Items Companies
Spectacles frames Titan

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1 Comment

  1. Sanjay Das

    January 29, 2018
    Reply

    Nicely written

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